NOTE 11. CONVERTIBLE LOAN

The Company entered into a $20 million convertible loan note instrument in April 2021. The note has a 5% annual interest rate. During the years ended December 31, 2023 and 2022, the Company converted loan notes totaling $809,692 and $14,228,245, respectively, into ordinary shares and warrants and repaid $0 and $3,195,765, respectively, of the convertible loan note. The convertible loan was recognized as a hybrid financial instrument and accounted for as two separate components: (i) a loan and (ii) an embedded conversion option derivative. As of December 31 2023, the convertible loan had either been fully paid down or converted. As such, the balance of both the convertible loan and corresponding embedded derivative was $0 as of December 31, 2023.

(i) The convertible loan’s initial fair value was the residual amount of the consideration received, net of attributable costs, after separating out the fair value of the embedded conversion option derivative. The loan is subsequently measured at its amortized cost.

(ii) The embedded conversion option derivative was initially measured at fair value and is subsequently remeasured to fair value at each reporting date. The embedded derivative could have been classified as a component of equity only if in all cases the contract would be settled by the Company delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or debt redemption. That is, had the embedded instrument satisfied the “fixed-for-fixed” criteria outlined in ASC 815-40. However, the convertible instrument included a conversion feature resulting in settlement in a variable number of shares and consequently, was not considered indexed to the company’s shares (i.e. it did not qualify for the scope exception to derivative accounting outlined in ASC 815-40). As a result, the derivative is presented in the consolidated balance sheet as a liability in accordance with ASC 815-15, Derivatives and Hedging-Embedded Derivatives. Changes in the fair value (gains or losses) of the derivative at the end of each period are recorded in the consolidated statements of operations.

On August 9, 2022, the Company agreed with one of the loan note holders not to exercise the right to require the loan notes to be repaid in cash in accordance with the terms of the loan notes and to amend certain other aspects of the loan notes (“2022 amended loan note”). As additional consideration, the Company has issued warrants to subscribe for 11,678 ordinary shares in the share capital of the Company.

In accordance with ASC 470-50, the modifications to the 2022 amended loan notes represent a substantial modification as the amended debt instrument was considered substantially different (as compared to the original instrument) due to the following changes:

(i) Removing the exercise of the right to require the loan in cash as of August 9, 2022.

(ii) Extending the repayment date to January 31, 2023 and modifying the structure to be repaid in shares if not redeemed before in cash.

(iii) Revising the conversion price for the conversion of the loan notes in shares. The revised conversion price would be $0.50 and would be based on the the 5-day trailing VWAP of the Company’s ADS if it is trading above that amount. Further, the conversion option would have a $0.20 as a floor.

(iv) Giving the option to the holder for redemption in cash, which will occur no later than February 10, 2023 and to the Company for an early redemption at any moment but having the Holder an option to convert into shares using the revised conversion price at that moment.

On April 3, 2023, the Company agreed with the loan note holder not to exercise the right to require the loan notes to be repaid in cash in accordance with the terms of the loan notes and to amend certain other aspects of the loan notes (“2023 amended loan note”). As additional consideration, the Company has issued warrants to subscribe for 200,000 ordinary shares in the share capital of the Company. This warrant contained a condition whereby if a registration statement, to be filed by the Company, registering all of the securities underlying the note holder’s amended convertible loan note, was not declared effective by July 31, 2023, the note holder will be entitled to receive 0.30 Ordinary Shares for each share it was originally entitled to purchase under these warrants without the payment of any additional consideration. No such registration statement was filed. The related fair value of the issue of any additional securities is approximately £29,000 ($37,000) and is not considered material to the financial statements.

The modifications to the 2023 amended loan notes represent as substantial amendment as the modifications are related to:

(i) A waiver to any defaults arising in connection with the 2022 amended loan notes.

(ii) Extending the repayment date to January 15, 2024; and

(iii) Amend the Conversion Price (as defined in the Loan Note) of the outstanding loan notes to be the lesser of $1.00 or the lowest closing price of the Ordinary Shares during the ten (10) day period prior to the date the Noteholder delivers a notice of conversion to the Company, not to be lower than $0.20

The following table summarizes the changes in the convertible debt instrument during the year ended December 31, 2023:

SCHEDULE OF CHANGES IN CONVERTIBLE DEBT INSTRUMENT 

The value of the embedded derivative was remeasured to fair value at each reporting date, based on the Black-Scholes valuation model, with recognition of the changes in fair value in the consolidated statements of operations. The inputs associated with calculating the fair value of the embedded derivative are considered to be Level 2. The following inputs were used to determine the conversion option:

 SCHEDULE OF BLACK SCHOLES VALUATION MODEL OF MEASUREMENT INPUT

The following inputs were used in the Black-Scholes valuation model to determine the related share purchase warrants:

BLACK-SCHOLES VALUATION MODEL TO DETERMINE THE RELATED SHARE PURCHASE WARRANTS